CNW CORP. v. Japonica Partners, LP
| Decision Date | 05 November 1990 |
| Docket Number | Civ. A. No. 89-125 LON. |
| Citation | 776 F. Supp. 864 |
| Parties | CNW CORPORATION, Plaintiff, v. JAPONICA PARTNERS, L.P., et al., Defendants. JAPONICA PARTNERS, L.P., and Paul B. Kazarian, Defendants and Counterclaim-Plaintiffs, v. Robert W. SCHMIEGE, et al., Counterclaim-Defendants, and CNW Corporation, Plaintiff and Counterclaim-Defendant. |
| Court | U.S. District Court — District of Delaware |
Kenneth J. Nachbar and Robert J. Valihura, Jr., Morris, Nichols, Arsht & Tunnell, Wilmington, Del. (Harold C. Hirshman (argued), Robert B. Milner, Stuart Altschuler and Elpidio R. Villarreal, Sonnenschein Carlin Nath & Rossenthal, Chicago, Ill., of counsel), for plaintiff and counterclaim-defendant.
William Prickett, and Wayne J. Carey, Prickett, Jones, Elliott, Kristol & Schnee, Wilmington, Del. (Andrew J. Levander (argued) and Joseph Giovanniello, Jr., Shereff, Friedman, Hoffman & Goodman, New York City, of counsel), for defendants and counterclaim plaintiffs.
This case arose in the context of a hostile takeover attempt. The Plaintiff target corporation commenced this action alleging that the Defendants violated sections 13(d) and 14(a) of the Securities Exchange Act. The Defendants were unsuccessful in their attempt to gain control of the target and have moved this Court to dismiss the Plaintiff's complaint as moot.
The Plaintiff CNW Corporation ("CNW") alleges that the Defendants developed a plan to take over CNW. Japonica Partners, L.P. ("Japonica"), one of the Defendants, initially developed coinvestor agreements and later formed several limited partnerships with the purpose of providing funding for the takeover of CNW. Written materials called Project Eagle were developed to attract investors. Japonica apparently engaged Phoenix Capital as its broker for the purchase of CNW stock. Japonica began buying CNW stock and on March 13, 1989, owned approximately 8.8% of CNW's outstanding shares. On March 16, 1989, Mr. Kazarian, one of the Defendants, filed a Schedule 14B regarding the Defendants' solicitation of proxies from CNW shareholders.
CNW responded by commencing this lawsuit on March 16, 1989. The Plaintiff's amended complaint filed as a matter of right on March 28, 1989, alleged that the Defendants were in violation of sections 13(d) and 14(a) of the Securities Exchange Act. 15 U.S.C. §§ 78m(d), 78n(a). Specifically, CNW alleged that the Schedules 13D and 14B filed by the Defendants were misleading because they were incomplete.
On March 16, 1989, CNW also moved this Court for a preliminary injunction. With respect to the Defendants' alleged section 13(d) violations, CNW requested that this Court: order Japonica and Defendant Lederman to file amended Schedules 13D; enjoin Japonica from purchasing CNW stock for thirty days after filing the corrected schedules; enjoin Japonica from voting any shares at the May, 1989, CNW shareholder meeting; order Japonica to offer to rescind purchases made during the period of March 18, 1988, until the filing of the corrected schedules; order Japonica to divest itself of any remaining shares of CNW that it acquired during this period; and permanently enjoin the Defendants from further violations of the securities laws. Based on the alleged section 14(a) violation, CNW asked this Court to: require Japonica to file an amended Schedule 14B; enjoin Japonica from soliciting proxies until Japonica filed the amended schedule; issue an order declaring that the proxies previously obtained by Japonica were null and void; and permanently enjoin the Defendants from violating the securities laws.
This Court denied CNW's motion for a preliminary injunction on April 14, 1989. CNW appealed that decision on April 18, 1989.
On May 10, 1989, 874 F.2d 193, the Court of Appeals for the Third Circuit issued an order enjoining the Defendants from soliciting proxies for the May, 1989, meeting until they disclosed the names of the limited partners and the names of the parties to the co-investor agreements. On that date, Japonica amended Schedule 14B to comply with the Court of Appeals' order.
On May 16, 1989, Japonica lost the proxy contest at CNW's annual shareholder meeting.
The Court of Appeals' opinion was filed on May 18, 1989. The opinion upheld this Court's decision not to issue a preliminary injunction based on the failure of Japonica to disclose the Eagle Trust books and the Phoenix Capital agreement. The Court of Appeals held, however, that the Defendants' failure to disclose the identity of the limited partners and the contents of the co-investor agreements violated section 14(a).
On May 19, 1989, CNW filed a proposed second amended complaint and moved this Court to allow the amendment. The second amended complaint included several more counts based on other alleged violations of section 14(a). The most substantial changes were in the remedies requested; CNW asked for a declaratory judgment that Japonica had violated sections 13(d) and 14(a) of the Securities Exchange Act and damages equal to CNW's expenses in advertising to combat Japonica's illegal proxy solicitations.
On June 6, 1989, Japonica sold 943,000 shares of CNW stock bringing its ownership down to approximately 3% of CNW's outstanding shares. Docket Item ("D.I.") 122, Exhibit ("Ex.") 4. Japonica filed amendments to Schedules 14B and 13D on June 6 and 7, 1989, indicating that its ownership of CNW stock was below the 5% threshold required for reporting under section 13(d) and announcing the withdrawal of its tender offer. Id., Ex. 3, 4.
Counsel for the Defendants filed a motion to dismiss the second amended complaint as moot and for failure to state a claim upon which relief could be granted.1 On September 27, 1990, the Court heard oral argument on whether the Plaintiff's second amended complaint should be dismissed.
Federal Rule of Civil Procedure 15(a) provides that "leave to amend a complaint shall be freely given when justice so requires." The Court of Appeal's order and the Defendants' subsequent disclosure allowed the Plaintiff to discover information it did not know prior to May 10, 1989. The second amended complaint was filed May 19, 1989, and incorporated this new information. There was no undue delay on CNW's part. The parties are not close to trial so the amendment does not work unfair surprise or hardship on the Defendants. The Plaintiff's motion to file a second amended complaint is granted.
The Defendants argue the Plaintiff's second amended complaint should be dismissed on two grounds: the complaint is moot and the complaint does not state a claim for which relief can be granted. The Defendants argue that the issue of whether this Court should grant equitable relief is mooted by the Defendants' loss of the proxy contest and sale of their CNW stock. Furthermore, the Defendants contend that the Plaintiff is not entitled to damages because the Plaintiff's claim fails to allege the type of causation required to recover damages under section 14(a).
In opposition, the Plaintiff argues that injunctive relief is appropriate because there is a reasonable likelihood that the Defendants will continue to violate sections 13(d) and 14(a). The Plaintiff also argues that this Court has the jurisdiction to issue a declaratory judgment regarding the Defendants' past conduct. Finally, counsel for CNW argues that section 14(a) does provide a basis for allowing CNW to recover expenses incurred in responding to Japonica's illegal proxy solicitation.
To grant a motion to dismiss, this Court must take all well pleaded allegations as true, interpret the complaint in the light most favorable to the plaintiff and determine if the plaintiff may be entitled to relief under any reasonable reading of the pleadings. Colburn v. Upper Darby Tp., 838 F.2d 663, 665-66 (3rd Cir.1988).
In order for a private party to seek an injunction for a violation of the securities laws, one of the elements the private plaintiff must show is that the plaintiff will suffer irreparable harm without the remedy. See, e.g., Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 57, 95 S.Ct. 2069, 2075, 45 L.Ed.2d 12 (1975) (); Kaufman and Broad, Inc. v. Belzberg, 522 F.Supp. 35, 45 (S.D.N.Y.1981) ().
In cases where injunctions have been granted, the defendant was actively acquiring stock in, or attempting to take over the target corporation at the time the injunction issued. See, e.g., CNW Corp. v. Japonica Partners, L.P., 874 F.2d 193 (3rd Cir.1989); cf., Corenco Corporation v. Schiavone & Sons, Inc., 488 F.2d 207, 215 (2d Cir.1973) (). When the threat of takeover is not imminent, an injunction is not warranted. See Rondeau, 422 U.S. at 59, 95 S.Ct. at 2076 (); Trane Co. v. O'Connor Securities, 718 F.2d 26, 27-28 (2d Cir.1983) (); In re Haas, 36 B.R. 683, 689-90 (Bankr.N.D.Ill. 1984) ().
In this case, the Plaintiff has not alleged that CNW will be irreparably harmed by the Defendants' present...
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